Exam Appeals Bill’s Fate Is Up in the Air

The disagreement between financial institutions and regulators over changes in the exam process may not be resolved on Capitol Hill any time soon.

The House Financial Services Committee hasn’t scheduled a markup of a bill to allow financial institutions to appeal exams to an administrative law judge. A spokeswoman for the panel declined to say whether or when such a session might occur.

No companion bill has been introduced in the Senate and the Obama administration hasn’t taken a position on the measure. Therefore, even if it passes the House its future prospects are uncertain.

At a Feb. 1 House subcommittee hearing, officials of all banking regulators spoke out strongly against the measure saying it would jeopardize safety and soundness and increase costs. Credit union and bank executives said it was needed to make the examination process more accountable.

Reps. Mel Watt (D-N.C.) and Don Manzullo (R-Ill.) criticized the NCUA for regulatory excesses. However, Watt said he is opposed to the bill.

The bill’s main sponsors are Reps. Shelley Moore Capito (R-Wa.Va.) and Carolyn Maloney (D-N.Y.). They are, respectively, the chairman and ranking Democrat on the House Financial Institutions’ subcommittee on financial institutions and consumer credit. The measure has 96 co-sponsors in the House.

At the hearing, Capito said that the contrasting testimony from regulators and financial institutions led her to think that they were living in “alternate universes.”

One industry official said the hearing “allowed us to make our points and hopefully it sends a message to regulators that there is concern about how some examinations are handled. Sending a message is key, and maybe it will result in changes so the legislation will be less necessary.”

John McKechnie, a former official of the NCUA who now lobbies for credit unions and other financial institutions, said the hearing “took many of the complaints that lawmakers had been hearing privately and put them out in the open.”

McKechnie added that while regulators pay attention to comments from members of Congress, sometimes the complaints are too vague.

“The more specific the concern, the more likely the agency is to pay attention. And if a member has a specific piece of legislation to address an agency’s practice that will have an impact,” McKechnie said. “A general complaint that the agency should go easier on financial institutions and be more flexible, without specific examples, is less effective.”

The bill would allow a financial institution that is unhappy with the results of its examination the right to appeal it to an administrative law judge who would submit his or her findings to the ombudsman of the Federal Financial Institutions Examination Council, which is made up of representatives of federal and state regulatory entities. NCUA Chairman Debbie Matz is the council’s current chairman.